Why Debt Matters

The Brookings Institution has establishment economist Alice Rivlin's rather honest comments on government debt:

The reasons debt matters are pretty straight forward. First, we have to pay interest on the debt. The interest is a contractual obligation and has to be paid first, before payments for other services that the country expects the government to perform. At any level of total spending, the more we spend on interest, the less is left for anything else. In recent years the United States has been able to borrow at extraordinarily low interest rates—rates held down by Federal Reserve action, world-wide investor confidence in the underlying strength of the U.S. economy, a long history of fiscal responsibility, and lack of good alternative places for investors to put their money. In FY2013, net interest payments were 6.4 percent of budget outlays, but OMB expects them to rise to 11.6 percent by 2019 as interest rates rise.[3] If interest rates increase faster than currently expected net interest could easily rise to, say, 20 percent of outlays.